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Turns out Warren Buffett won’t be the billionaire who saves newspapers either

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HOME&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LATEST STORY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jan. 29, 2020, 2:32 p.m.By selling Berkshire Hathaway’s newspapers to Lee Enterprises, the world’s most successful investor is acknowledging the industry’s downhill slide is not near an end.Circa 2012, one of the most popular lines among American newspaper journalists went something like this: “Newspapers can’t be that terrible of a business if Warren Buffett, the smartest investor in the world, wants in.”That was the year that Buffett’s Berkshire Hathaway for $142 million. As : “The fact that Warren Buffett thought newspapers were a good investment was always a huge psychic boost for journalists.”If Warren Buffett believes newspapers are a potential growth area, it has to be true, right?— Brent Jolly (@Brent_T_Jolly)But Warren Buffett buying newspapers so must be some value there.— Jim Naveau (@Lima_Naveau)And today is why people like Warren Buffett believe newspapers are a sound investment.— Chris VanDeHoef (@chrisjvandy)Would you bet against Warren Buffett?— Jasons Jukebox (@jasons_jukebox)Well, that line lost whatever punch it had retained this morning when Berkshire Hathaway to Lee Enterprises for $140 million. Buffett famously doesn’t like selling any of his assets — his is “forever” — so this one comes with more sting than other newspaper dealings.Today only reinforces the fact that of the fast-declining daily newspaper industry. Cutting costs by getting bigger is the only real plan the industry is collectively behind.Lee’s acquisition is far smaller than — the No. 2 chain buying the No. 1, and taking its name — but it serves the same purpose: a rapid elimination of “duplicative” costs, what the British like to call redundancies. In the New Gannett case, the company aims to save $400 million or more through headcount and other reductions. Here, the savings are more modest, forecast by Lee to be in the $20 to $25 million range —appropriate to the smaller scale, with fewer newspapers sold and most in smaller markets.Faced with unending print revenue declines — long deep in advertising and now increasing in circulation — top industry executives have identified M&amp;A as their best strategy to remain profitable businesses in the next several years.This is a broad, if short-term perhaps, win-win. Lee adds scale, finds “synergies,” and refinances its pesky debt, all in one deal. It will now operate 81 dailies, up from 50. The role that Lee — one of only a handful of publicly traded newspaper companies, but a small one — would play newspaper industry’s ongoing Consolidation Games was been unclear. We now have a relatively simple, elegant answer: Lee has bought time.The Wall Street Journal headlined its piece today “.” “,” Bloomberg put it.Good attention-grabbers, but they underplay how much today’s sale is just the next logical step for Buffett.Buffett commented on the industry in his after the Media General deal, in 2013:Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town — whether the news is about the mayor or taxes or high school football — there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents.But there was nothing about newspapers in his 2014 or 2015 letters. They — but not in a good way. (In a section headlined “Important Risks”: “Circulation of our print newspapers will continue to fall, a certainty we allowed for when purchasing them.”) He was also :Newspapers are going to go downhill. Most newspapers, the transition to the internet so far hasn’t worked in digital. The revenues don’t come in. There are a couple of exceptions for national newspapers — The Wall Street Journal and The New York Times are in a different category. That doesn’t mean it necessarily works brilliantly for them, but they are a different business than a local newspaper.But local newspapers continue to decline at a very significant rate. And even with the economy improving, circulation goes down, advertising goes down, and it goes down in prosperous cities, it goes down in areas that are having urban troubles, it goes down in small towns – that’s what amazes me.A town of 10 or 20,000, where there’s no local TV station obviously, and really there’s nothing on the internet that tells you what’s going on in a town like that, but the circulation just goes down every month. And when circulation goes down, advertising is gonna go down, and what used to be a virtuous circle turns into a vicious circle.I still love newspapers! You’re talking to the last guy in the world. Someday you’ll come out and interview me, and you’ll see a guy with a landline phone, reading a print newspaper.That the sale is to Lee is no particular surprise: In June 2018, Berkshire Hathaway Media largely turned operating control of its 31 dailies over to Lee. That was a first step in gaining some efficiency in scaled management. It was also a clear acknowledgment by Buffett, a and booster for the industry, that he no longer believed the print newspaper business could be turned around. By April 2019, he was most of the industry was “toast.”Buffett saw newspapers as a business that, in the hands of experienced operators, could still throw off cash — that the decline of the business could be managed both profitably and with its public service principles maintained, if still tattered by newsroom cuts. He didn’t buy the major metro papers that were taking the biggest hits; he bought papers in where the local daily still felt connected to the community and still lacked much of the competition the bigger fish faced.Dothan, Alabama; Florence, South Carolina; Waco, Texas; Danville, Virginia. Berkshire Hathaway’s biggest newspaper markets were Buffalo, Tulsa, and Omaha. what Buffett was looking for in a newspaper noted what most of his had in common: a circulation of 30,000 or less in a town with a population of 75,000 or less.Buffett, a former member of The Washington Post’s board, has longstanding ties to Lee, as well as to its now-chair . That relationship paved the way for both the 2018 agreement and today’s sale.As with the purchase that brought most of these papers to Berkshire Hathaway — that 2012 — BH managed to gain some ancillary financial benefits in the transaction.As part of this deal, Berkshire Hathaway lends Lee $576 million. That money both finances this purchase and lets Lee to do what it’s found difficult to do over the past year: refinance its roughly $400 million in debt. That makes Berkshire Hathaway Lee’s only lender — a generally more friendly one than private equity or most others who might lend money to a newspaper chain in 2020.Lee will pay the not-insignificant interest rate of 9 percent. Note, though, that’s significantly lower than the 11.5 percent that Apollo Global Management got to finance the Gannett/GateHouse merger. (There’s also a real estate leasing deal accompanying the acquisition.)Berkshire Hathaway’s newspapers were always immaterial to its broader financial fortunes, of course: doesn’t mean much to a company valued this morning at $551 billion. But Buffett’s newspaper investment didn’t turn out so bad in the end. He bought Media General’s papers in 2012 for $142 million; he’s selling his papers (which do include some additional, non-Media General properties) for $140 million today. He was almost certainly able to pull profits out of them every year in between.He’ll make 9 percent annually on the loan to Lee. As part of the 2012 deal, he also loaned to Media General, which made BH good money — including a in a prepayment premium. It also got of Media General’s shares, which after execution were worth about $85 million just a year later.Warren Buffett knows how to make money, in other words — even in an industry on the way down. He’s a value investor, not a growth investor. Which makes sense, given that the — the one Buffett bought in 1965 and converted into his astonishingly large holding company — was a declining textile business based in New Bedford, Massachusetts. As he would :“The northern textile business in which all of our capital resides is destined for recurring losses and will eventually disappear.” That development, however, was no death knell. We simply adapted. And we will continue to do so.Today’s deal nonetheless reduces the number of major newspaper chains, a count now dwindling quickly. Gannett and Berkshire Hathaway have both left the scene in just a few months. (Gannett’s name lives on, but it’s ex-GateHouse people running things.) Tribune Publishing or MNG Enterprises is likely to be next, and McClatchy’s coming financial reorganization will likely make it a deal target too. Warren Buffett has found his exit; others are left looking.Warren Buffett tosses a newspaper during Berkshire Hathaway’s annual newspaper throwing contest, May 5, 2012 (AP/Nati Harnik).&nbsp;What’s the best way to follow how the news is changing?Our daily email, with all the freshest future-of-journalism news.MLABenton and Ken Doctor, Joshua. "Turns out Warren Buffett won’t be the billionaire who saves newspapers either." Nieman Journalism Lab. Nieman Foundation for Journalism at Harvard, 29 Jan. 2020. Web. 13 Sep. 2022.APABenton and Ken Doctor, J. (2020, Jan. 29). Turns out Warren Buffett won’t be the billionaire who saves newspapers either. Nieman Journalism Lab. Retrieved September 13, 2022, from https://www.niemanlab.org/2020/01/turns-out-warren-buffett-wont-be-the-billionaire-who-saves-newspapers-either/ChicagoBenton and Ken Doctor, Joshua. "Turns out Warren Buffett won’t be the billionaire who saves newspapers either." Nieman Journalism Lab. Last modified January 29, 2020. Accessed September 13, 2022. https://www.niemanlab.org/2020/01/turns-out-warren-buffett-wont-be-the-billionaire-who-saves-newspapers-either/.Wikipedia{{cite web&nbsp;&nbsp;&nbsp;&nbsp;| url = https://www.niemanlab.org/2020/01/turns-out-warren-buffett-wont-be-the-billionaire-who-saves-newspapers-either/&nbsp;&nbsp;&nbsp;&nbsp;| title = Turns out Warren Buffett won’t be the billionaire who saves newspapers either&nbsp;&nbsp;&nbsp;&nbsp;| last = Benton and Ken Doctor&nbsp;&nbsp;&nbsp;&nbsp;| first = Joshua&nbsp;&nbsp;&nbsp;&nbsp;| work = [[Nieman Journalism Lab]]&nbsp;&nbsp;&nbsp;&nbsp;| date = 29 January 2020&nbsp;&nbsp;&nbsp;&nbsp;| accessdate = 13 September 2022&nbsp;&nbsp;&nbsp;&nbsp;| ref = {{harvid|Benton and Ken Doctor|2020}}}}Join the 60,000 who get the freshest future-of-journalism news in our daily email.Help advance the Nieman Foundation’s mission “to promote and elevate the standards of journalism” .© 2022 by the President and Fellows of Harvard CollegeWalter Lippmann HouseOne Francis Ave.Cambridge, MA 02138617 495 2237The Nieman Journalism Lab is a collaborative attempt to figure out how quality journalism can survive and thrive in the Internet age.It’s a project of the .Follow usThe basicsProjectsDirectorStaff writers© President and Fellows of Harvard College, unless otherwise noted.

HOME&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LATEST STORY&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jan. 29, 2020, 2:32 p.m.By selling Berkshire Hathaway’s newspapers to Lee Enterprises, the world’s most successful investor is acknowledging the industry’s downhill slide is not near an end.Circa 2012, one of the most popular lines among American newspaper journalists went something like this: “Newspapers can’t be that terrible of a business if Warren Buffett, the smartest investor in the world,...

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Ken Doctor

Senior writer + founder of  @NiemanLab  at  @Harvard . I write about (a) digital journalism, (b) southern history, mostly. Cajun. Takes mine, not Harvard's.

Joshua Benton

We are the Nieman Journalism Lab, part of @niemanfdn at Harvard. We're trying to figure out the future of news.

Turns out Warren Buffett won’t be the billionaire who saves newspapers either

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